The Stimulus Error

This post
by Arnold Kling is the most compact and powerful thing I've read recently.

I remain resolutely opposed to all government bailouts and to any "stimulus"
package that increases government spending. The economy is already reeling
from the credit crunch. The last thing it needs is for government to crowd
out productive activity by squandering resources on alleged public goods.

Arnold guesses that about 500 people would have significant influence on how
a stimulus would be spent:

The arithmetic is mind-boggling. If 500 people have meaningful input, and the stimulus is almost $800 billion, then on average each person is responsible for taking more than $1.5 billion of our money and trying to spend it more wisely than we would spend it ourselves. I can imagine a wise technocrat taking $100,000 or perhaps even $1 million from American households and spending it more wisely than they would. But $1.5 billion? I do not believe that any human being knows so much that he or she can quickly and wisely allocate $1.5 billion.

He is much too generous. I cannot imagine a wise technocrat taking even $1
of mine and spending it more wisely than I would. The technocrat does not
know me, my situation, my goals, my desires. Only I do. It's a certainty
that if my dollar is taken and spent by the government, I'll get less value
than if I had spent it myself. The same is true for you.

I'm surprised that Arnold cast the hypothetical in the way he did. I cannot
even conceive what it means, except in a comic-book-like way, to spend
someone's money better than they would spend it themselves. Better by what
standard? It's enormously arrogant to claim that the technocrat's goals
are superior in any objective sense to the taxpayer's.

There are no collective goals. There are only the goals of individuals.

You assume that everyone is a smart as you. Trust me, no one is as even half as smart as you think you are.

2:Captain Arbyte

2009-01-09 20:40:34 UTC

The point isn't about individual intelligence. It's about whose judgment to follow. If we're thinking about who will spend John's money better, what criteria determine "better"?

Given that we're talking about John's money, it's John's goals that matter. No technocrat can possibly match the intimate knowledge of John's goals that John has.

John's judgment will be superior. Always.

The only escape is to say that John's goals are wrong. That's an easy thing to claim but a hell of a thing to prove.

3:Poison Ivy

2009-01-09 20:49:30 UTC

If you're not smart enough to choose what to do with your own money, then you shouldn't be even allowed to walk without assistance. He's not saying that every decision someone makes with their money is Perfect, but you, and only you, are (should be) entitled to spend it how, when and on what you wish. If you think spending/investing your money on "x" is what you want to do, then obviously you think it's the "best" way. And it doesn't matter the outcome of that decision because at the time you believed it was how you wanted to spend it. You took a chance, made an investment, and either gained or lost by it. That's all.

But to have someone else, a second party, peering over my shoulder telling me how to spend my money is ridiculous. They are not ME, they do not know my life or goals, etc, and therefore cannot possibly know better than _I_ on how to spend it.

Now, personally as an individual, _I_ want to seek out the best financial advice so when it comes time to spend my money, I really can make "the" best decisions possible. But gaining that knowledge is MY repsonsibility. Not the government's, and not anyone else's. No one helps me earn My Money, and therefore no one should help me spend My Money.

4:Anonymous

2009-01-12 02:15:59 UTC

I guess I should stop putting the birthday money from gramma to my 5 year old in a college savings account and start letting him spend it how he wants.

5:Captain Arbyte

2009-01-12 16:12:48 UTC

Anonymous, don't be obtuse. Your 5 year old doesn't even understand what money is. It is completely normal to write about sophisticated topics without adding a disclaimer every single time that what was written doesn't apply to children.

6:Poison Ivy

2009-01-12 17:14:38 UTC

Well, the great thing about that statement is, YOU CAN! If that's what you think is best, you can do that! Will your son thank you and be grateful come college time? Probably not. Will you be able to assist with college costs in a little over a decade? Probably not. But you are able to spend that money as YOU see fit.

And why COULDN'T you give him his birthday money to begin teaching him about the value of a dollar? I don't believe it's ever too early to introduce children to the concept of money, saving, spending, goals, and financial terminology. Maybe that really is the BEST option for that money. Yes, he'd need some guidance and to be introduced to what money can do for a person, but that's the role of a good parent. Who knows, maybe come college time he may thank you!

7:Anonymous

2009-01-13 02:34:43 UTC

I'm not being obtuse. I hold that the average person makes financial decisions much like a 5 year old. That is, what do I want now? This kind of thinking is rarely the right long term strategy for society or even the individual. Perhaps you should study the prisoner's dilemma.

8:Captain Arbyte

2009-01-14 20:53:41 UTC

I have studied the prisoner's dilemma. I don't see its relevance here.

Your opinion of your neighbor's financial decisions is one thing. It's quite another to claim that (1) your opinion is objectively superior, and that (2) you have the moral authority to override your neighbor's decisions and force him to obey yours instead.

I don't believe that either are true.

9:Sam

2009-01-14 22:08:25 UTC

Taking something (money in this case) from one person and using it to fix another persons problems never works and is borderline dictatorship. If one person wants to help another person that's fine; the decision shouldn't be forced. This is true of individuals, governments and businesses.

10:Anonymous

2009-01-15 05:49:17 UTC

Arbye, you don't get the prisoner's dilemma. The point is that an individual can actually make a completely rational decision that is actually not the best overall decision as he cannot rely on the other person to also make the best overall decision. Since the rational thing for individual to do is not the best thing for society, the libertarian philosophy is naive and cannot work. This isn't to say we should let the government make all of our decisions or spend all of our money.

Sam, it NEVER works?

11:Captain Arbyte

2009-01-16 04:22:43 UTC

Anonymous, you still haven't understood my point. What makes you so certain that you or some technocrat is philosohpically able to know what the "best overall decision" is? And even if that is possible, what gives you (or the technocrat) the moral authority to impose it on those who disagree, especially if it isn't Pareto-optimal?

When I look at a technocrat I just see some essentially random guy I disagree with. What the hell makes his opinion better than mine, or anyone else's?

12:Anonymous

2009-01-16 06:02:30 UTC

I understand your point. The problem is that your point is wrong because you take it to the extreme when you say that even $1 of your money cannot be spent wiser by anyone but you.

The technocrat doesn't have to be smarter than you or even to know what the best overall decision is. The technocrat simply has the ability to make a decision for the community that individuals cannot rationally make. The technocrat will sometimes make bad decisions. The technocrat will sometimes make good decisions. If the technocrat does a good enough job, people will let the technocrat stay in office.

13:Captain Arbyte

2009-01-17 17:55:43 UTC

Why is it wrong to take the argument to the extreme? Don't merely say so -- explain!

How are the technocrat's decisions superior? What special knowledge or skill do they have that can possibly overcome their lack of personal information about all the individuals their spending decisions would affect?

Nor have you explained what gives the technocrat the moral authority to enforce his decisions.

I don't think you have engaged the argument.

14:Anonymous

2009-01-17 18:32:02 UTC

I've explained it a number of times. You've explained nothing. You make statements like "There are no collective goals. There are only the goals of individuals." as if they are facts without any proof. Good luck with that attitude with your marriage by the way.

But, since you don't seem to get it, I'll try to simplify it even more. There are things that are good for society. For example, the interstate highway system. Under your philosophy, these things would never get built because they'd have to be built privately and voluntarily. Even if the vast majority of people buy into the value of such a thing, they would not rationally volunteer their money for the project because they have no guarantee that everyone would also volunteer their share. But with the government's ability to tax, the project can be done and society reaps the benefit and most everyone is happy.

15:Captain Arbyte

2009-01-19 22:07:09 UTC

Did you know that originally, lighthouses were privately built? Other so-called public goods can be provided for privately, too. The device is a "dominant assurance contract" - look it up.

You're making quite an assumption that the things government builds in the name of the public good are, in fact, of greater value than the things individuals would have bought in the absence of coercion.

I don't dispute that the interstate highway system is a thing of value. What I dispute is that it is (1) of greater value than what people would have built on their own, and that (2) you have the moral authority to force people to contribute to it if they disagree about its value.

16:Anonymous

2009-01-20 02:08:06 UTC

Lighthouses aren't a very good example. Lighthouses don't require public access or face any particular problem with the need for acquiring substantial property or easements. Furthermore, lighthouses directly serve a small subset of the population.

Public highways not only directly serve almost the entire population, but also could not be efficiently built privately even with an assurance contract for the simple reason that only the government can exercise power of eminent domain. Without that power I hold that the interstate highway system could not have been built at all privately due to enough deed holders being unwilling to sell their property. So, to address dispute (1), the gov't built highway system (given your acknowledgment that it has value) is inherently more valuable than the highway system which does not exist. I, in this argument, assume that you would not posit that the power of eminent domain should be given to private individuals or groups. Please correct me if you feel otherwise.

As for (2), the moral authority is simply that sometimes people must be forced to do things that they do not wish due to the fact they live in a society. This is the basis of any grouping of humans. Unless you live in complete isolation, there must be minimal rules the group agrees on. If there are rules, invariably someone will eventually disagree with a rule. That doesn't mean that person has the moral authority to break the rule.

Please note that I'm more than happy for services be provided outside the government if that is the more efficient way to do things. Please contrast this with your philosophy. I am open to doing things via the most optimal way. You are tied to a simple-minded belief that the government is automatically not the best way to achieve results.